On a recent trip to Beaver Creek, Colorado, I unwisely chose to fly to EGE, connecting in Denver, instead of flying to Denver, spending the night at 5,000′, and driving a rental car west to Beaver Creek (actually Arrowhead, at 7,400′).
United Airlines was kind enough to stamp my bag with “VIP” but then they proceeded to leave it in Denver during my two-hour layover. I waited for about 30 minutes after the flight had landed before waiting 15 minutes to talk to the baggage claim lady. The bag made it onto the next flight from DEN to EGE and was then driven to my friend’s apartment. I was reunited with my bag approximately 8 hours after the flight landed. I gave the driver a $20 trip (“this should cover half of your next Starbucks”).
The question for readers is did this grow, shrink, or leave the GDP unchanged compared to if United had delivered the bag on the carousel?
Arguments for growth: United paid the courier to deliver the bag. He also got $20 to spend at Starbucks or elsewhere. The courier company will purchase a new van slightly sooner because they had to drive a little bit extra. The courier company bought more gasoline than they would have. The courier delivered the bag at 8:08 pm, a time at which he might have been relaxing at home rather than working at any job.
Arguments for shrinkage: I had my laptop with me and worked that afternoon while adjusting (poorly) to the altitude. So I did 30 minutes less work while waiting around at the baggage claim. Maybe the courier could have taken a more productive job during the same hours if airlines weren’t constantly losing bags.
Readers: What’s the right answer? GDP grew as a result of this lost bag? It stayed the same? It shrunk?
[Note that the Denver airport was originally supposed to run with an automated baggage handling system. This became one of the world’s most notorious software and systems failures and probably wasted close to $1 billion. See this MIT study. Also this New York Times article.]
As used in economics, GDP is just the grand total of goods and services produced over a year. It has never been designed to measure a nation’s well-being, just how quickly economy is growing/shrinking. Roughly, it’s like measuring revenues but not expenses in accounting.
So, in your case, luggage delivery will contribute to GDP growth according to the existing convention.
That 20 bucks is not included in the GDP. Tipping is part of the shadow economy, in that it’s not traced and counted officially.
The broken window fallacy made real.
I think the GDP grew. We can’t tell whether the courier would have gotten a better gig, or how much you could have billed during your 30 min wait. But everyone who helped you was getting paid, and the tip would have found its way back into the economy, as likely at Starbux as elsewhere. I got flashbacks to Macroeconomics class reading this.
Losing a bag grows the GDP, but makes the citizens poorer. Kind of like immigration.
As superMike points out, the broken window fallacy, as first described by Bastiat in “The seen and the unseen”. The economy-boosting effects of that spending are outweighed by the opportunity costs of not putting that money to better use.
To really make a dent you should have broken a few windows on his van too.
I lived in Denver 1994 to 95, and got an unofficial report from a civil engineer that had been involved in airport construction:
BAE Automated Systems had characterized the job as a 4 year project, and as outlined in MIT report ( http://ardent.mit.edu/airports/ASP_papers/Bag%20System%20at%20Denver.PDF ), BAE only was contracted in 1992, less than 2 years ahead of scheduled opening date. As a consequence of this discrepancy, BAE did not accept significant delay penalties in the contract, and gave warnings that the task was impossible. In summary, the city of Denver (general contractor) was largely responsible for the many monetary losses.
Also, in the urgency to open the airport, in many cases backup baggage handling facilities ended up permanently taking up space that was initially allocated to the automated baggage handling system, possible referring to only concourse B getting the automated system deployed, as mentioned in MIT report.
In a sense, Denver was ahead of today’s accelerating trend in liberal cities, namely namely decommissioning of expensive and useful infrastructure towards hip and trendy uses. The last decade, countless 2 lane roads in cities have been replaced by single lane + bike lane.
I am going to sidestep the measurement problems GDP poses and put this in terms of aggregate utility (which economists love to call “utils” to irritate everyone except econ majors). You would raise the level of utils if some Madison Avenue ad agency first created a need that would be satisfied by the loss and safe return of the bag. Phillip may have gotten a little more work done without the distraction of unpacking. Or maybe the ad would focus on the positive feelings he had when he was reunited with his old socks and underwear.
Re: Denver Baggage System
Denver was a boondoggle from the start, claiming (among other miracles) that it would never close for snow.
The baggage system was a solution looking for a problem that was shopped around the industry from the ’70s. Eastern Airlines installed a version in the new Atlanta terminal in 1980 – it promptly failed in very similar fashion to Denver 13 years later. As a project manager for Delta on the Atlanta project and several other airports, I was pitched the system several times but it was obviously too complex.
Baggage automation is good for bags from the arrival curb to sorting for cart loading, but ramp operations are too fluid and complex (every arriving aircraft is potentially the same distribution problem as the terminal, plus bags may be loose or in containers – sorted or unsorted – and on and on). Planeside baggage handling, scorned as it is, is a job safe from robots for now. Scanned or RF tags for tracking have improved the lost bag problem – philg’s bag would not have caught up so promptly 10 years ago.
It is hard to tell. $20 would be spent either by customer or consumer anyway. Extra fuel / van maintenance expenses will likely cut into the airline’s upgrades and investment budgets. On airline side it would translate into lower tax payment or bigger tax write-off and thus decrease GDP, although there are variants when GDP number not affected. If customer is productive then GDP losses come on customer side, for example new company started a day later.
No tax on services in California. Why not pay each other for back scratching? We can maintain our GDP over China indefinably.
Dear Phil,
Losing baggage is for amateurs. Here’s the better experiment, using your Uber driver and the $20 tip.
While waiting for luggage, sneak up behind a gentle and kind senior citizen (although it would work for anyone, the math is more direct for medicare recipients) and whack them repeatedly with a 2 x 4.
Then get in the Uber and drive away quickly. As before, tip him the $20.
As far as I can tell, any hospitalization adds about $150k of billable goods and services to the economy, PER WEEK! Medicare is a Government outlay. Counts as GDP Talk about a multiplier effect on your $20. That’s high velocity money right there.
Whack The Economy Now (WHEN!) could become the new motto, as we combat shrinking GDP per capita by seriously injuring our senior citizens.
Now, since this would also work for privately-insured individuals, there would be no problem in expanding the program once we had exhausted the initial target population.
The rate of GDP growth would be limited only by the Whackee/Whacker ratios as described in any elementary differential equation textbook, which, in the limiting case, would fall to 1:1. Certainly an undesirable state of affairs.
This might be a case where unrestricted immigration would be an unalloyed benefit, b/c it would allow almost unlimited GDP growth and the riches derived therupon.